In case you haven’t heard, the military retirement system is changing. What’s being called the ‘Blended Retirement System’ will take effect January 1, 2018 and moves a step closer toward that of a traditional 401k. Below, we outline what it is and highlight the notable changes, so you know what to look out for.
How it’s different
The Blended Retirement System is very similar to the current pension system, but reduces the retirement multiplier from 2.5% to 2%. So the new formula will look like this:
You will gain this annuity for life after serving 20 years and your base pay is calculated on your highest 36 months.
The second major change is that service members can collect a retirement without having to serve for a minimum 20 years. The DoD will automatically contribute 1% of your base pay and match up to 4%, with a vesting period of two years. After this two-year window, service members can walk away from the military and collect their accumulated retirement in the form of monthly payments with the option of an upfront 25% or 50% lump-sum payment.
Who’s affected?
All members serving as of December 31, 2017, are grandfathered under the legacy retirement system. Those who joined before 2006 will be automatically enrolled into the legacy system. Those who joined between 2006 – 2018 will have the option to choose their plan and any service member entering after January 1, 2018 will be automatically enrolled in the new plan.
Pros/Cons
Roughly 81% of service members walk away from the military before 20 years and do not receive any retirement. Under the BRS, this demographic stands to benefit because they now have the power to contribute toward and collect retirement without being bound for a full 20 years. However, for the military lifers, their retirement benefits will suffer due to the .5% annual multiplier reduction.
So there you have it, short and sweet. This will undoubtedly have consequences in terms of attrition, but the DoD is taking steps to protect themselves from the anticipated fallout. If you’re interested in diving deeper into the details of the Blended Retirement System, you can find more information at http://militarypay.defense.gov/BlendedRetirement/.